Violations have been uncovered in Vietnam Rubber Group (VRG) and its member companies’ investment and management activities, leading to massive losses.

VRG and member companies were hit by the Government Inspectorate while preparing for the IPO

According to information published on the Government Port, Prime Minister Nguyen Xuan Phuc asked the Ministry of Public Security to report the investigation results about signs of violations detected at VRG and its member companies in 2006-2011 that the Government Inspectorate of Vietnam published in 2014.

The Ministry of Public Security will have to submit the report to the PM before January 1, 2018.

Failure in investments

According to the Government Inspectorate’s investigation results, VRG invested VND2.6 trillion ($114.47 million) in sectors outside of the group’s operation fields, which was higher than its charter capital. Notably, VRG poured money in thermal power, cement, and steel production, and almost all of these investments failed.

Besides, during the inspectation process, the Government Inspectorate found that a number of VRG’s leaders contributed capital to establish Dong Thap Seafood Processing Export JSC. However, the company was flooded by consecutive losses, leading to a debt of VND253 billion ($11.1 million), while bank loans to serve the company’s operations were used for other purposes.

Numerous violations in member companies

At Vietnam Rubber Finance One Member Co., Ltd. (RFC), the inspectorate asked nine defendants to clarify violations in capital mobilisation and lending.

Besides, the Government Inspectorate found that RFC joined in short- and long-term stock trading before receiving the authorities’ approval.

The second is Rubber Trade Service and Tourism JSC (Rutratoco). Accordingly, the company was found to be in numerous counts of violations with its investment in Mong Cai hotel in the northern province of Quang Ninh. In 2006-2011, the company also reported consecutive losses, forcing VRG to guarantee Rutratoco for loans from banks worth VND78 billion ($3.43 million).

Another violation came from Phu Rieng-Kratie Rubber JSC (PRK). Notably, PRK arbitrarily poured $600,000 into Dong Bac Development JSC to develop a project in Cambodia before receiving permission, which constitutes a violation of investment regulations. PRK’s loss stands at an estimated VND600 billion ($26.4 million).

Back to VRG, the group plans to conduct its equitisation next year, with the equitisation plan already approved by the prime minister.

Notably, the group will auction 475 million shares, equivalent to 11.88 per cent of its total charter capital of VND40 trillion ($1.76 billion) to the public. Another 475 million shares will be offered to strategic investors, while the remaining amount will be sold to the group’s employees and trade union. The state will retain three billion shares, or 75 per cent of the capital, after the equitisation.

According to the prime minister’s directions, VRG must complete the initial public offering (IPO) on January 1, 2018. However, the group proposed to the Ministry of Industry and Trade to ask for the government’s approval to extend the deadline by three months.

Earlier in March this year, VRG announced that it would conduct its IPO in the second quarter of 2017 but due to the heavy workload and the scale of the auction, the sale has been delayed.

After the equitisation, the group will have 99 subsidiary and affiliated companies. VRG has completed the equitisation for two member companies and plans to divest from 22 companies.